Japan to gradually reduce gasoline subsidies from Dec.: Takaichi

Japan intends to gradually cut gasoline and other fuel subsidies beginning in December, Prime Minister Sanae Takaichi announced on Thursday, amid significant financial worries surrounding the expensive measure aimed at addressing price spikes. The government will also subsidize electricity and gas bills this winter, similar to the assistance provided last year, with households anticipating a saving of roughly 7,000 yen ($44) over three months from December.

This decision follows proposals from both ruling and opposition parties urging the government to gradually reassess the gasoline subsidy program and develop an exit strategy due to its financial strain, particularly for Japan, which has the weakest fiscal health among major advanced economies. Since March, the government has been providing subsidies to keep retail gasoline prices near 170 yen per liter.

Takaichi stated that the target price will initially be increased by 5 yen each month through spring, while closely monitoring crude oil price trends. The fuel subsidies, initially implemented to curb rising prices in response to Middle East tensions, serve as a transitional measure to minimize the impact on prices and need to become more sustainable, she added.

Currently, the gasoline subsidies surpass 50 yen per liter, amounting to more than 10 billion yen per day, and the total cost of financing the measure since Takaichi assumed office in October last year has reached approximately 1.4 trillion yen. Rising global crude oil prices, primarily driven by the closure of the Strait of Hormuz due to the initiation of the U.S.-Israeli conflict with Iran in late February, have contributed to the financial burden. Resource-poor Japan traditionally depends heavily on oil imports from the Middle East.